Atlantic Richfield Company v. Federal Power Commission

Atlantic Richfield Company (“ARCO”) petitioned to review two orders of the Federal Power Commission (“FPC”) on the grounds that the FPC improperly set “new gas” ceiling prices on ARCO’s sales of natural gas to El Paso Natural Gas Company (“El Paso”). The FPC granted temporary certificates of public convenience and necessity enabling ARCO to make the sales to El Paso. Our jurisdiction rests on 15 U.S.C. § 717r(b).

The FPC ruled that the natural gas which ARCO contracted to sell in interstate commerce after January 1, 1973, was subject to the “old gas” price ceilings under FPC regulations, rather than the “new gas” ceilings established by the FPC’s rate orders. The FPC ruling was based upon its determination that at the time of the sale, the gas had already been “dedicated” to interstate commerce and was therefore appropriately subject to the lower ceiling rates prior to January 1, 1973.

Both of these orders involve “farmout” agreements, under which an oil producer farms out a portion of the producer’s leasehold interest to a different producer to explore for and to produce gas or oil. If the farmout recipient discovers gas in commercial quantities, he receives an assignment of…